Recognising that the world is not on target to reach the Paris Agreement, TT International in its Looking beyond low carbon to holistic environmental investing paper argues that the current low carbon approach needs to be supplemented with an environmental solutions strategy.
The paper claims that the majority of environmental assets are being placed into low-carbon products, which in isolation are insufficient to deliver decarbonisation and biodiversity enhancements, and can actually be directly harmful to these goals when they are overemployed.
In the paper, asset manager TT suggests that low-carbon portfolios carry three main issues:
- They can include companies that demonstrate a commitment to reduce their carbon intensity, which is simply promises of the future rather than anything tangible now.
- They include companies that use offsetting, which the planet can only do so much off before there are problems with monocultures and food production.
- They tend to favour sectors, such as tech, that are generally less carbon intensive and therefore not deserving of a special low-carbon allocation.
- They tend to be dominated by consumer products companies, which encourage excess consumption that is damaging to the environment.
Instead, TT argues for an environmental solutions strategy that solves many of these problems by providing lower cost-of-capital to companies that produce the goods, services and systems that will enable the planet to reduce greenhouse gas emissions and improve biodiversity.
“The magnitude of the environmental crisis facing our planet requires that asset allocators take bold and creative action,” said Harry Thomas, co-portfolio manager of TT Environmental Solutions Strategy at TT International. “Low carbon investing in isolation is unlikely to be sufficient. Our thought leadership paper argued the case for supplementing a low carbon approach with an environmental solutions strategy.”